Macroprudential Policy and Financial (In)Stability Analysis in the Russian Federation

We study a small open economy New Keynesian model calibrated to the Russian economy with a banking system that trades secured and unsecured debt. Firms endogenously default on their unsecured debt obligations over the business cycle. We examine the effectiveness of four alternative countercyclical policies that respond to the growth in unsecured credit in the economy. The lean-against-the-wind monetary policy is the most effective in simultaneously affecting the real economy and stabilizing the banking system in response to both oil price and total factor productivity shocks. The countercyclical deposit reserve requirement was found to play a stabilizing role following an oil shock, while the countercyclical capital adequacy requirement helped to stabilize the banking system after a total factor productivity shock.